Saraya Sugar Mills (P.) Ltd. vs Commissioner of Income Tax (No. 2)

Satish Chandra, C.J.—The assessee is a private limited company. It carries on business of manufacture and sale of sugar. For the assessment year 1965-66, it claimed a deduction of Rs. 16,181 and for the assessment year 1966-67 a sum of Rs. 3,017 on the ground that these sums represented loss suffered by the assessee in selling some of its securities. The ITO disallowed the claim on the finding that the securities were an investment and were not part of the stock-in-trade of the assessee. This view was upheld in appeal by the AAC as well as by the Tribunal.

At the instance of the assessee, the Tribunal has referred the following question of law for our opinion :

"Whether, on the facts and in the circumstances of the case, the loss on sale of securities amounting to Rs. 16,181 and Rs. 3,017 for the assessment years 1965-66 and 1966-67 were capital loss and hence not allowable as a revenue deduction ?"

It is not disputed that the assessee was not a dealer in securities. At the beginning of the relevant accounting period it had securities worth over rupees twelve lacs. It purchased securities worth nearly sixty thousand and during the same period sold securities worth over seven lacs. The case set up by the assessee was that it was utilising these securities for pledging them with the bank against the assessee''s overdraft account. They constituted trading assets. This plea did not find favour with the revenue authorities. They repelled it. It was not the assessee''s case that it purchased these securities with the sole object of utilising them as its trading assets. The circumstances under which the assessee sold some of the securities, held by it, have not been disclosed. If the intention was that the securities will constitute the trading assets it was to be expected that they will remain with the assessee so long as the business continues and that they will be exclusively used for the purposes of business. But, without there being any commercial exigency in relation to the assessee''s business, the assessee chose to sell some of these securities. The assessee has not given any explanation whether there was any necessity having regard to the commercial requirements of the assessee''s business which compelled it to dispose of these securities. In this background, the Tribunal was, in our opinion, justified in repelling the suggestion that these securities were acquired only for pledging with the bank against its overdraft account and constituted the trading assets. It was a clear case of investment. The investment was of a capital nature. The loss arising out of the sale would clearly be a capital loss. The question referred to us is, hence, answered in the affirmative, in favour of the department and against the assessee.

The Tribunal had also referred two other questions. These questions were referred to a Full Bench. These questions were answered in the affirmative in favour of the department and against the assessee.

We, therefore, answer all the three questions referred to us in the affirmative, in favour of the department and against the assessee. The Commissioner will be entitled to his costs, which are assessed at Rs. 200.